Expectations For The Stock Market

As investors, the one thing we all have in common is that we keep a keen eye on the stock market. How we react to the market’s short-term fluctuations, well that varies from investor to investor. Those who don’t mind the market going down 2% in one day understand that stocks are volatile and that this is normal. What do most people do in this scenario? Panic, sell? Believe their retirement is doomed to be over? Flip the script and the same can be said for big swings up in the market. Investors get more confident in the future when they see their account values going up, naturally. The key here is to understand that the fluctuations in your stock holdings will eventually even out into an average return in the positive upper single digits over the long run. One year does not make a huge difference in your future returns.

In the past 61 years, the S&P 500 has gone up a total of 458.14% from December 1958 to December 2018. That is a 6.23% average return on an annualized basis. However, during these 61 years, the number of years that were in the -10% to +10% returns range were just 21. This shows how misleading market averages can be. Looking back on historical returns, a swing in the single digits, either positive or negative, is not as common as one would think. The average return isn’t exactly smooth and your typical year for the stock market is never really all that close to the average of 6-8% you hear stocks should return.

We took it one step further and broke down the yearly returns into ranges. In the negative years, the stock market returned the following: Between 0% to -10% 7 times, -10% to -20% 6 times, -20% to -30% 1 time, and -30%+ 2 times. Let’s compare it to positive years where the stock market moved up 0% to +10% 14 times, +10% to +20% 19 times, +20% to +30% 12 times, and never returned more than +30% percent or more. This goes to show two things: (1) The stock market historically has gone up more frequently than it has gone down. (2) When the stock market goes down, the historical decreases have been more extreme than the increases.

After going over these numbers, we urge that you stop listening to the talk of the town and instead start learning from history. Many will say the world is coming to an end when there is a drop, yet we know from this data that yes if there is a drop, it is usually faster and more severe than a positive year, however, over time, more good years have happened than bad years. Now that is something to get excited about! At Fogel Capital Management we consider this type of information daily and implement these investment strategies for our clients. If you would like to discuss this article further or request a free portfolio consultation, call us at (772) 223-9686.